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Morpheus takes a stand — again

By Jefferson Graham, USA TODAY

WOODLAND HILLS, Calif.  One of the entertainment industry's archest enemies operates from a small office suite on the second floor of a suburban strip mall here.

The sign just above the Italian restaurant doesn't give any clues about "free online music" or "file-sharing." It simply says "Morpheus."

Morpheus. As in the little Internet file-sharing company that Paramount, 20th Century Fox, Walt Disney, Warner Bros., Capitol-EMI, NBC-Universal and Sony/BMG, among others, are seeking to have the Supreme Court shut down for copyright infringement.

Legal issues get most coverage

File-sharing program Grokster has received more publicity for its legal proceedings than for its popularity. The program was downloaded 18,131 times last week  compared with 1.4 million downloads for LimeWire, according to CNet's Download.com.

Rung runs Grokster with his son and brother and has no other employees, says his lawyer, Michael Page.

Rung, who rarely speaks to the press, declined an invitation to talk to USA TODAY. He will not be attending the Supreme Court hearing later this month.

"Dan's not a theatrical guy," Page says. "There's not a lot for Dan to do at an appellate argument."

Page declined to address issues dealing with Rung's past.

The Recording Industry Association of America has sent reporters court documents showing that Rung pleaded guilty to mail fraud and subscribing to a false tax return in 2003.

"Digging up old dirt is what you do when you don't want to argue the case on its merits," Page says. "Aside from that, no comment."

By Jefferson Graham

Against all odds, Morpheus parent StreamCast Networks has won two court battles with Hollywood and the music industry. Two panels of judges ruled that StreamCast's Morpheus and fellow file-sharing program Grokster aren't responsible for infringement — their users are.

Hollywood and the record labels appealed. Now, the big date before the biggest court in the land is just weeks away on March 29. If StreamCast CEO Michael Weiss is sweating, he's sure not showing it.

"They're big bullies," Weiss says of his opponents. "Somebody had to take a stand against them, and I'm glad it was us."

He's so confident of winning he's already making big plans for the future. A new release of Morpheus software next month will add a twist to the familiar offering of unauthorized free access to songs, movies, games and other media.

The new program adds Internet search capabilities and opportunities for advertisers to place pay-per-click ads to Morpheus' audience of about 4 million users.

"We're small now," Weiss says about his company, which is owned by venture capital firm Timberline Venture Partners and other investors, "But one day we're going to be as big as Google."

If he pulls it off, it will be a minor miracle. Not only is the entertainment industry sparing no expense to take him down, he also has to contend with the millions of file sharers who have moved on to new alternatives.

Fickle fans

Back in 2001, Morpheus was a hot commodity. Song swappers flocked to the original "son-of-Napster" after Napster was shut down by the courts. Over 100 million copies of Morpheus' software were downloaded.

The following year Morpheus was eclipsed by Australia's Kazaa, which was the first to offer access to audio and video files. Kazaa now cites over 300 million downloads.

Last year the file-sharing community moved to eDonkey, which offered much faster downloads. It's now the most popular file-sharing program, according to Internet measurement firm BigChampagne.

In an attempt to win back users, Morpheus recently tweaked its software to offer users access to media on more networks. With the flick of a switch, Morpheus can tap into computers hooked into eDonkey, Kazaa's FastTrack and Gnutella, which includes the popular LimeWire program.

Apple's iTunes Music Store has sold more than 300 million songs in two years, but its success pales next to the number of files being traded on swap services. According to BigChampagne, the number is over 1 billion songs a month.

The so-called peer-to-peer programs offer users access to free media, but at a big price. To get Morpheus, users must be willing to accept adware and spyware programs that install pop-up ads on their computers.

File-sharing programs like Morpheus routinely get knocked for such practices. But Weiss claims users can delete the additions from the computer control panel.

"We even show them how to do it on our site," he says. "Most don't bother to do it, though."

He freely admits that Morpheus exists as a tool to help online users hook their computers together to acquire free media. Weiss says he's OK with that, citing studies showing that people have bought more CDs after being exposed to music on file-sharing services.

The recording industry says artists should be paid when their work is shared. Weiss says he wants to pay them, and get a license to sell their music online as iTunes does, but the labels have refused his request.

"I have a real problem with all the adware," says Phil Leigh, an analyst with Inside Digital Media. "But I do think Weiss is right — people are getting exposed to new music on peer-to-peer. CD sales are up. How else to explain that?"

CD sales rose 2.3% in 2004, according to the Recording Industry Association of America.

Weiss began his career running a Chicago video store in the early 1980s. He recalls fighting with movie studios that were uncomfortable with the idea of videos being rented.

"The entertainment industry always fights new technology," he says. "They didn't like player pianos, TV, home video — you name it. Then, when all is said and done, they end up making lots of money."

The last great battle between technology and entertainment was the 1984 Sony Betamax case, when the studios feared that excessive home taping of movies would kill the growing video industry.

The studios lost, and video thrived. Fast-forward to 2003, where DVD sales and rentals accounted for $16.3 billion in revenue, compared with $9.5 billion at the box office.

"This case is not about technology," insists Stanley Pierre-Louis, an RIAA senior vice president. "It's about whether people that co-opt technology should be given a pass."

The RIAA and its counterparts have lined up a star-studded list of supporters, including former Solicitor General Ted Olsen and rock stars Don Henley, Sheryl Crow and the Dixie Chicks. The Bush administration even filed a supportive brief.

In their corner, Morpheus and Grokster have the Consumer Electronics Association representing device manufacturers, the Computer & Communications Industry Association — whose members include Yahoo and Sun Microsystems — Internet providers Verizon and SBC and their own stable of rock stars, including Ann and Nancy Wilson of Heart and Janis Ian.

Legal fees are at $4 million and growing for five different legal teams, including pro bono work provided by the privacy advocate group Electronic Frontier Foundation. Weiss says StreamCast is running at a deficit because of the huge fees.

"That's the RIAA's strategy, to outspend you to death," he says. "That's why no one ever took them on before."

Weiss acknowledges that many Morpheus users engage in copyright infringement. But he contends that his company shouldn't be held liable for their actions.

"Gun manufacturers aren't responsible when people kill with their guns, automakers aren't on the hook if their cars are used in a robbery," he says. "Why should we be?"